The most important tool the Fed uses to conduct monetary policy is open market operations (OMOs), a tool controlled by the Federal Open Market Committee (FOMC). A. Explain what OMOs are. (2 points)
B. Explain how OMOs affect the money supply. (4 points)
C. What type of OMO is consistent with expansionary policy? With contractionary policy? (2 points)
D. Show the effects of OMOs on graphs of money and bond markets to establish the relationship between interest rates and bond prices. (6 points)

You are the owner of a local honda dealership. unlike other dealerships in the area, you take pride in your “no haggle” sales policy. last year, your dealership earned record profits of $1.5 million. however, according to the local chamber of commerce, your earnings were 10 percent less than either of your competitors. in your market, the price elasticity of demand for midsized honda automobiles is 4.5. in each of the last five years, your dealership has sold more midsized automobiles than any other honda dealership in the nation. this entitled your dealership to an additional 30 percent off the manufacturer’s suggested retail price (msrp) in each year. taking this into account, your marginal cost of a midsized automobile is $11,000. what price should you charge for a midsized automobile if you expect to maintain your record sales?